Market expectations take shape ahead of CBT interest rate decision
While awaiting the Central Bank's interest rate decision, financial institutions have updated their year-end inflation and rate cut projections.
Ahead of the Central Bank of the Republic of Turkey's upcoming interest rate decision, financial institutions have updated their forecasts in line with growth, inflation, and global market data. While annual inflation declined in August, institutions have started shifting their rate cut expectations to October and December.
Global and Domestic Markets
In the markets starting September with a busy data agenda, risks stemming from the Middle East continue to affect pricing. Brent crude oil prices reached the $96.75 level in early trading of the new week.
Following the Turkish economy's growth of 2.3 percent in the second quarter, remaining below expectations, all eyes have turned to August inflation data and the decisions to be made by the CBT.
August Inflation Figures
In Turkey, the Consumer Price Index (CPI) increased by 1.84 percent on a monthly basis in August. The expectation was for this rate to be 1.95 percent.
Meanwhile, annual inflation fell from 31.75 percent to 31.51 percent. A limited increase in food prices prevented inflation from coming in higher.
Factors Driving Up Inflation
The main expenditure groups that drove inflation upward the most in August were transportation, housing, education, alcoholic beverages, and tobacco.
The transportation group increased by 4.82 percent, contributing 0.82 percentage points to the index. Akbank and İş Yatırım emphasized that the slowdown in domestic demand also played a role in the moderate course of inflation.
Institutions' Year-End Inflation Expectations
Financial institutions' year-end CPI projections are generally forming in the range of 28 percent to 30 percent.
While Tacirler Yatırım shared the lowest forecast at 28 percent, Citi projected that year-end inflation could exceed 30.9 percent.
Timing of Interest Rate Cut Expectations
Ahead of the CBT Monetary Policy Committee meeting, which is in the focus of the markets, institutions are reviewing their rate cut expectations.
While BBVA Research and İş Yatırım expect a 100 basis point cut in October, Citi and ING forecast that the policy rate will be kept on hold at the September meeting.